About to lose your employer-based health insurance? Considering COBRA, (which stands for Consolidated Omnibus Budget Reconciliation Act), but not sure which is better, COBRA or Obamacare? (Obamacare is just another name for the Affordable Care Act or ACA.) The answer depends on your situation, but this article explains how COBRA and Obamacare compare.
Same Health Plan vs. Different Health Plan
If you're enrolled in a health plan offered by an employer and you're going to be losing that coverage, COBRA is available if the employer has at least 20 employees and is either a private business or a state or local government, but COBRA doesn't apply to plans offered by the federal government or by churches. You can continue your coverage for up to 18 months with COBRA (or 36 months in some situations), with an additional 11 months available if you are disabled.
Note that state continuation laws might provide you the opportunity to extend your employer-sponsored coverage even if the employer has fewer than 20 employees; the rules on that vary from state to state.
When you choose COBRA, you’re paying to continue coverage under the exact same employer-sponsored health insurance plan you already have. You know how it works and what to expect. The only learning curve involved is learning when and how to make your COBRA premium payments.
If you pick an Obamacare health plan from your state’s health insurance exchange (or outside the exchange, where plans are also ACA-compliant), you’ll be giving up your old plan and will have several new plans from which to choose.
You'll be buying a plan in the individual/family market, as opposed to the employer-sponsored market (often referred to as non-group versus group). So you’ll need to understand how your new health plan works if it’s a different type of plan than your old one. For example, if your employer's plan was a PPO but your new Obamacare plan is an EPO, you’ll need to understand how they differ so you’ll be able to use your new plan effectively.
If you continue with your current plan under COBRA, your healthcare provider will remain in-network because you're not changing your health plan (note, however, that providers and insurers do sometimes end their network contracts, so even keeping your current health plan isn't always a guarantee that your provider network will remain unchanged).
If you choose a new Obamacare plan instead, you’ll have to make sure that your healthcare provider is in-network with your new plan, or you’ll have to change healthcare providers. You’ll need to check that your specific prescription medications are covered under your new plan’s drug formulary, or you may have to pay out-of-pocket for them. This is all true even if the individual plan you choose is offered by the same insurance company that provided your employer-sponsored plan.
For example, your employer might have a plan offered by the Blue Cross Blue Shield insurer in your state, and you might decide to switch to an individual plan offered by that same Blue Cross Blue Shield insurer. But your new plan can still be completely different from your old plan. The benefits, the provider network, the covered drug list, the type of plan (HMO, PPO, EPO, etc)—these can all be very different between the individual market and the employer-sponsored market, even when you're looking at the same insurance company.
Paying the Full Premium vs. Getting a Subsidy to Help You Pay
If you choose COBRA continuation coverage, you’ll pay the full monthly premium for that coverage yourself, plus a 2% administrative fee (keep in mind that the full premium means the part you were paying in addition to the part your employer was paying, which is likely a substantial portion of the premium).1 Some employers may provide temporary subsidies to help you pay COBRA premiums, so check to see exactly what's being offered.
If you forgo COBRA and buy your health insurance from your health insurance exchange instead, you may be eligible for a subsidy to help lower your monthly premiums. These subsidies are larger and more widely available through the end of 2022, thanks to the American Rescue Plan (and the Build Back Better Act calls for an extension of the additional subsidies).2
In addition, you may be eligible for a subsidy to lower your out-of-pocket medical costs, including a reduced out-of-pocket maximum and lower deductible, copayments, and coinsurance.
In both cases, the subsidies are only available for health insurance purchased through an ACA health insurance exchange in your state. If you buy an ACA-compliant plan outside the exchange, you can't get any subsidies.3
Subsidies in the exchange are based on an ACA-specific calculation of your household income. The more you earn, the lower your subsidy will be. If you earn a lot, you may not be eligible for a subsidy. But if your income is moderate, you’re likely to qualify for some help. Subsidy eligibility extends well into the middle class, and the American Rescue Plan has extended them even further. For 2021 and 2022, premium subsidies are available if the cost of the benchmark plan would otherwise be more than 8.5% of your household income (as noted above, the Build Back Better Act would further extend this provision).
Having a Second Chance to Choose
If you’re eligible for COBRA, you only have a limited time to enroll. The clock starts ticking on either the day you receive your COBRA election notification, or the day you would have lost coverage (if COBRA wasn't an option), whichever comes later. So for example, if your coverage is going to end on June 30 and your employer provides your COBRA election paperwork to you on June 25, then your COBRA election period will start on June 30. But if you aren't given the COBRA paperwork until July 3, than your COBRA election period would start on July 3.
From that date, you normally have 60 days to decide whether you want to elect COBRA (as discussed in a moment, this deadline has been extended in response to the COVID pandemic). If you do choose to continue your coverage with COBRA, you'll have seamless coverage, back to the date that you would have otherwise lost coverage.1 So even if you sign up on day 59, you'll have coverage for all 59 of those days (and you'll have to pay premiums for those days, even though they've already passed). If you don’t act before the deadline, you’ll lose your chance at COBRA—the enrollment window is a one-time opportunity; you don't get a second chance.
To address the COVID-19 pandemic, the IRS and the Employee Benefits Security Administration published a rule in May 2020 that extends timeframes for various benefits, including the COBRA election period. Under the temporary rule, there is an "outbreak period," which is defined as a window lasting 60 days past the end of the National Emergency Period. And the outbreak period is disregarded when calculating the window that a person has for electing COBRA, meaning that their 60-day clock doesn't start ticking until after the outbreak period ends.4
The National Emergency Period has been ongoing since the start of the pandemic, and was extended by President Biden in early 2021.5 Once the National Emergency Period ends, the outbreak period will continue for another 60 days after that, and then COBRA election periods would start. But while the extended deadline for electing COBRA does help to ensure that people can maintain health coverage, it's important to note that if and when a person elects COBRA, they have to pay all of the premiums back to the date the coverage would have started if they had elected COBRA right away—you cannot elect COBRA and start paying premiums from just that point onward.
If you lose your job-based health insurance, you’ll qualify for a special enrollment period on your state’s health insurance exchange (or for an individual market plan offered outside the exchange, if that's your preference), regardless of whether COBRA continuation is available to you. And even if you choose COBRA at the start of your election period, you still have the full 60 days to change your mind and buy a plan in the individual market, if that ends up being your preference.6
Even if you miss the deadline to sign up for a plan through the exchange during your special enrollment period, you’ll have a second chance to sign up for health insurance on the exchange during the annual open enrollment period every autumn (November 1 through January 15, in most states). There is no open enrollment period for COBRA.
Duration of Coverage
COBRA doesn’t last forever. It was designed as a program to get you through until you secure other coverage. Depending on what type of triggering event made you eligible for COBRA, your COBRA coverage will last from 18 to 36 months, with an extension available if you're disabled.1 After that, you’ll have to find other health insurance.
You may sign up for an Obamacare (individual market) plan for the remainder of the calendar year (on or off the exchange). If you sign up during a special enrollment period, you may switch to a new plan during the following annual open enrollment period, which starts each fall on November 1.
If you want to continue your new plan for more than a year and your insurer continues to offer it, you can renew it. If your insurer discontinues the plan, you’ll be able to sign up for a different plan on your exchange, or directly with a health insurer if you prefer off-exchange coverage (remember that subsidies are not available if you buy a plan outside the exchange).
You can continue to have individual market coverage for as long as you like. And premium subsidies will continue to be available through the exchange if your income is in the subsidy-eligible range and you don't gain access to another employer's plan or Medicare.
Premium Payment Grace Period
COBRA doesn’t allow second chances. If you're late on your initial premium payment, you'll lose your right to COBRA coverage and you won't be able to get it back. If you’re late on a monthly premium payment other than your first payment, your health insurance coverage will be canceled that day.7
If you make your payment within the 30-day grace period, your COBRA coverage can be reinstated. However, if you don't make a payment within the grace period, you won’t be able to get your COBRA health insurance back (note, however, that the same regulation described above for temporary COVID-19 relief related to COBRA election deadlines also applies to COBRA premium payment deadlines).4
Losing your COBRA coverage by failing to pay your premiums doesn’t make you eligible for a special enrollment period on your state’s health insurance exchange, or outside the exchange. You’ll have to wait until autumn open enrollment (November 1 through January 15 in most states) to enroll in an Obamacare plan; you’ll risk being uninsured in the meanwhile.
While the insurers that sell health insurance on your state’s health insurance exchange expect to be paid on time every month, the grace period for late payments is longer than COBRA's for some people.
The ACA allows a grace period for late payments for all ACA-compliant individual market health plans (on-exchange or off-exchange). The grace period is 90 days if you've already made a premium payment and you qualify for an advance premium tax credit (subsidy), but it's only 30 days if you don't qualify for a subsidy, which includes everyone who buys coverage outside the exchange.8
Who Is the Governing Body?
COBRA plans and job-based health insurance are regulated by the U.S. Department of Labor. If you have a significant problem with your COBRA plan after following the plan’s appeals and complaints process, you may end up dealing with the Department of Labor in an attempt to resolve the issue.
If the plan is self-insured (which is the case for most large employers' health plans), your state won't have any regulatory authority over the plan. But if the employer purchases coverage from an insurer (as opposed to self-insuring), the state does have regulatory authority and may be able to step in on your behalf if you have an issue.
Health plans sold on your state’s health insurance exchange are regulated by each state. If you have a significant problem with your exchange-based health plan after following the plan’s appeals and complaints process, you may end up dealing with your state’s Department of Insurance or Insurance Commissioner to resolve the issue